Nov. 8 (Bloomberg) -- Japan's economic growth probably failed to accelerate in the third quarter, matching the slowest expansion since 2004, as bad weather and sluggish wage gains deterred shoppers.

The world's second-biggest economy grew at an annual 1 percent rate in the third quarter, according to the median forecast of 23 economists surveyed by Bloomberg News. The Cabinet Office will release the report on Nov. 14 at 8:50 a.m.

Slow consumer spending, which accounts for more than half of the economy, may leave Japan vulnerable to a drop in global demand for autos and consumer electronics. Weaker-than-expected gross domestic product may deter the central bank from raising interest rates, mindful the nation has had three recessions since 1991, two of which followed export declines.

``A weaker-than-expected GDP number would be a headwind against the Bank of Japan raising rates this year,'' said Yasunari Ueno, chief market economist at Mizuho Securities Japan Co. If investors aren't convinced the economy is doing well, ``the Bank of Japan may not be able to prepare the market.''

A fifth of Japan's exports are shipped to the U.S., where the economy expanded 1.6 percent in the third quarter, the slowest pace in more than three years. The International Monetary Fund on Nov. 2 cut its forecast for 2007 growth in Japan's biggest market to 2.6 percent from a 2.9 percent prediction made in September.

``With only exports propping up the economy amid a slump in domestic demand, Japan is vulnerable,'' said Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo.

Forecast Cuts

Economists have scaled back their Japan growth forecasts by about a third since the beginning of October, when a survey of 12 showed they expected growth at an annual 2.8 percent pace. The economy's second-quarter expansion of 1 percent was the slowest since the fourth-quarter contraction of 2004.

Exports are likely to be the strongest gross domestic production component in the latest quarter, with overseas demand offsetting lackluster spending at home. The yen's 5 percent slide against the dollar since May helped push exports to a record in the six months ended Sept. 30.

``Sustainable overseas demand will be key in reducing the risk of inventory adjustments that could cause the economy to stall,'' said Naoki Iizuka, chief economist at Dai-Ichi Life Research Institute in Tokyo.

Exports probably rose 2.4 percent, the fastest growth in three quarters, and imports probably slipped 0.4 percent. Net exports, the difference between exports and imports, probably added 0.4 percentage point to growth.

So far indications are that exports will be sustained. Toyota yesterday predicted a record profit after the yen weakened, boosting overseas sales. Toshiba Corp. forecast its highest annual profit in 16 years, because of demand for semiconductors and medical equipment.

Consumer Spending

Three reasons are cited for the slowdown in consumer spending this quarter. The rainy season stretched 10 days longer than average in areas where about 60 percent of the population lives; wages rose just 0.1 percent in the quarter; and the Nikkei 225 Stock Average fell 3 percent since May.

Personal consumption probably fell 0.3 percent, the first decline since 2004, according to the surveyed economists.

``We expect any dip to be short-lived,'' said Julian Jessop, an economist at Capital Economics in London. ``The weather has improved, retail sentiment has begun to recover, and business surveys have shown a further tightening of labor market conditions.''

The Bank of Japan said last week that it expects the economy to keep expanding as rising corporate profits encourage companies to increase wages and push up consumer prices.

Retail sales, which aren't used to calculate consumer spending, rose 0.6 percent in the quarter, rebounding from a 0.2 percent drop previously.

Business Investment

Spending by companies, which rose at the fastest pace in almost six years last quarter, probably slowed as well, rising 0.9 percent after surging at their fastest pace in almost five years in the second quarter, economist said.

The component will be incomplete next week as it doesn't include corporate surveys of spending plans and inventories. Still there are signs that companies are still building factories and ordering equipment.

Machinery orders, which point to capital spending in three to six months, probably rose for the second month in September, economists expect a report to show on Nov. 10.

Next week's GDP report will include revisions to the calculation of the deflator, a broad price gauge used to derive real growth from nominal growth to reflect a revision made to the consumer price index. The deflator probably fell 0.7 percent, little change from the 0.8 percent drop last quarter.

The GDP figures being released Nov. 14 are preliminary and will be revised after more data on private inventories and capital spending, which account for more than half of the capital spending component of GDP, are available from the Ministry of Finance on Dec. 4. The Cabinet Office is scheduled to release revised third-quarter GDP on Dec. 8.

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net

Last Updated: November 7, 2006 23:42 EST